Business Ethics
Ethics is a part of decision making at all levels of work and management
 Just as important as functional areas of business
 Deals with questions of whether practices are acceptable
 No universally accepted approach for resolving issues
Business Ethics Defined
Comprises principles, values, and standards that guide behavior in the world of business
 Ethical decisions occur when accepted rules no longer serve and decision makers must weigh
values and reach a judgment
 Values and judgments are critical in ethical decisions
Principles: Specific boundaries for behavior that are universal and absolute
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Freedom of speech, civil liberties
Values: Used to develop socially enforced norms
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Integrity, accountability, trust
A Crisis in Business Ethics
Nearly half of employees observe misconduct in the workplace
 After the financial crisis, business decisions and activities have come under scrutiny
 The financial sector has not regained stakeholder trust
 Misuse of company resources
 Abusive behavior
 Harassment
 Accounting fraud
 Conflicts of interest
 Defective products
 Bribery
 Employee theft
 Having good individual values/morals is not enough to stop ethical misconduct
 Ethics training helps provide collective agreement in diverse organizations
 Business ethics decisions can be complicated
 Studying business ethics helps identify ethical issues to key stakeholders
Before 1960: Ethics in Business
Theological discussions of ethics emerged
 Catholic social ethics included a concern for morality in business, workers’ rights, and living
wages
 Protestants developed ethics courses in their seminaries and theology schools
 The Protestant work ethic encouraged hard work
The 1960s: The Rise of Social Issues in Business
Social consciousness emerged
 Increased anti-business sentiment
 JFK’s Consumer Bill of Rights— a new era of consumerism
 Right to safety, to be informed, to choose, and to be heard
 Consumer protection groups fought for legislation changes
 Ralph Nader
The 1970s: Business Ethics as an Emerging Field
Business professors began to write about social responsibility
 An organization’s obligation to maximize positive impact and minimize negative impact on
stakeholders
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Philosophers involved
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Businesses concerned with public image
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Conferences held and centers developed
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Issues:
Bribery
Deceptive advertising
Price collusion
Product safety
Environment
The 1980s: Consolidation
Increased membership in business ethics organizations
 Ethics centers provided publications, courses, conferences, and seminars
 Firms established ethics committees
 Defense Industry Initiative on Business Ethics and Conduct (DII)
 The foundation for the Federal Sentencing Guidelines for Organizations
 Corporate support for ethics
Defense Industry Initiative on Business Ethics and Conduct (DII)
1. Supports codes of conduct and their widespread distribution
2. Member companies to provide ethics training for employees.
3. Defense contractors must create an open atmosphere for reporting violations without fear of
retribution.
4. Companies to perform internal audits and develop effective reporting and disclosure plans.
5. Member companies to preserve the integrity of the defense industry.
6. Must adopt a philosophy of public accountability.
The 1990s: Institutionalization of Business Ethics
Continued support for self-regulation, deregulation, and free trade
 Health-related issues more regulated
 The Federal Sentencing Guidelines for Organizations (FSGO) in 1991
 Set tone for compliance
 Preventative actions against misconduct
 A company could avoid/minimize potential penalties
The Federal Sentencing Guidelines for Organizations
Standards and procedures for preventing misconduct
 High level of oversight
 Care in delegation of authority
 Effective communication
 Employee training
 Systems to monitor, audit, and report misconduct
 Consistent enforcement and continuous improvement
The 21st Century: A New Focus
Continued issues with corporate non-compliance
 Public/political demand for improved ethical standards
 Sarbanes-Oxley Act (2002)
 Most extensive ethics reform
 Increased accounting regulations
 FSGO reforms (2004, 2008, 2010)
 Requires governing authorities to be informed of business ethics programs
 Dodd-Frank Wall Street Reform and Consumer Protection Act (2009)
 Aimed at making the financial industry more transparent/responsible
A firm’s greatest danger is not discovering misconduct early
Organizational Ethical Culture
Ethical culture: The component of corporate culture that captures the values and norms that an
organization defines as appropriate
 Creates shared values
Goal is to:
 Minimize need for enforced compliance
 Maximize utilization of principles/ethical reasoning
Global Ethical Culture
Nations working together to establish standards of ethical behavior
 NAFTA
 MERCOSUR
 WTO
 Companies can demonstrate their commitment to social responsibility through adopting
international standards
Ethics Contributes to Employee Commitment
Commitment comes from employees who are invested in the organization
 Employees willing to make personal sacrifices for the organization
 The more company dedication to ethics, the greater the employee dedication
 Concerns include a safe work environment, competitive salaries and benefits packages,
and fulfillment of contractual obligations
Ethics Contributes to Investor Loyalty
Companies perceived by their employees as being honest are more profitable
 Ethical climates in organizations provide a platform for
 Efficiency
 Productivity
 Profitability
Ethics Contributes to Customer Satisfaction
Consumers respond positively to socially concerned businesses
 Being good can be profitable
 Customer satisfaction dictates business success
 A strong organizational ethical climate places customers’ interests first
 Research shows a strong relationship between ethical behavior and customer satisfaction
Ethics Contributes to Profits
 Corporate concern for ethical planning is being integrated with strategic planning
 Maximizes profitability
 Corporate citizenship is positively associated with
 Return on investment and assets
 Sales growth
 Studies have found a positive relationship between corporate citizenship and performance